From April 6th, 2026, the rate of compensation paid to smaller employers will increase from 8.5% to 9%. Although this has been criticised for being less generous than the 2025 increase, this is an important update for all employers in the UK this spring.
Although the increase will secure some extra funding for employers, it is notable that the small 0.5% increase will not compensate for other changes increasing the cost to businesses, including the introduction of new ‘day-one’ employment rights and increases to National Minimum Wage that will also take effect on April 6th.
Recovery of Statutory Payments
Employers can usually reclaim 92% of statutory payments. However, smaller employers can recover 100% of the cost, along with the additional 9% compensation. This means the total recovery rate will increase to 109% from 6 April 2026.
For example, if £2,000 of statutory maternity pay is paid:
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A standard recovery would be £1,840
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A smaller employer would recover £2,180
Statutory payments that can be reclaimed include maternity, paternity, adoption, shared parental, parental bereavement and neonatal care pay.
Whilst these changes come into effect this spring, it is important to be aware that statutory sick pay is not recoverable.
How does this affect smaller employers?
An employer is classed as small for statutory payments purposes if their total class 1 national insurance contribution (NIC) payments were £45,000 or less for the tax year before the employee’s qualifying week:
- Both employee and employer contributions are included, but not class 1A or 1B NICs.
- The £10,500 employment allowance is not deducted in establishing whether the £45,000 threshold is met. For example, class 1 NIC payments might be £40,000, but if this is after deducting the full employment allowance, then the relevant figure is £50,500. Therefore, it is too high to qualify.
- The qualifying week varies depending on the type of leave. For example, for statutory adoption pay, the relevant week is the week that the employee is informed they will be matched with a child by the adoption agency.
HMRC’s guide to getting financial help with statutory pay can be found here.
Relief is claimed on a monthly basis through payroll software using the employer payment summary.
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